New-crop corn price-challenged

As in most investing, corn futures all come down to timing.

A key seasonal turning point for the grain already may have arrived, signaling a likely downturn in prices for weeks to come.

Prices for "new crop" corn futures -- or those for delivery after the year's crop is harvested around September -- typically start to rise in early June. The market accounts for the possibility that summer weather could turn too hot -- and damage the crops by baking bushels out of the harvest.

As time passes, uncertainty about the weather eases and prices start to head down.

The crucial inflection point for corn prices usually comes around mid-June. In most years, that's when the crop is developed enough for traders to feel more confident guessing eventual yields, says Rich Nelson, director of research at commodities-brokerage Allendale Inc. in McHenry, Ill.

But this year, farmers planted the U.S. crop early -- not only bringing forward that inflection point, but also reducing the risk of other weather problems.

Crops were in the ground about two weeks ahead of schedule, thanks to a particularly warm spring. The U.S. Department of Agriculture said the country's corn crop was 96% planted as of May 20 -- well above the five-year average of 81%.

The crop now growing also is in high health. The USDA last week said 77% of the freshly planted U.S. corn crop was in good to excellent condition, its first rating for this year's crop. In its first assessment last year, the USDA gave just 63% of the crop the same status.

In addition, early planting of corn lessens the chance of later-stage damage. The crop is less likely to be in its key pollination phase when summer heat peaks, and it reduces risk that an early-autumn cold spell could cut yields.

The inflection point may not only be early -- it may already be over after a price surge that ended last week, says Terry Reilly, an analyst for Citigroup Global Markets Inc. in Chicago.

"Since we're so far ahead of normal, we could see the downtrend kick in earlier," Mr. Reilly said.

"New crop" corn is reflected in the Chicago Board of Trade contract for December delivery. It closed Friday down 2.9% for the week, at $5.215 a bushel. December futures are down 11% so far this year.

Of course, a bout of bad weather could upset the corn cart. If a major problem like severe drought strikes the Midwest, corn futures could run higher.

But still, a small amount of weather damage isn't going to derail the harvest. Even if yields this year don't reach the record high predicted by the USDA, traders say harvested supplies are still likely to be more than enough to meet demand.

The USDA this month forecast the year's corn production at a record 14.8 billion bushels, which would shatter the old record of 13.1 billion bushels set in 2009.

December futures could be below their current levels by the time U.S. farmers start harvesting. Mr. Reilly says they could potentially fall to $4.25 by Oct. 1. Chad Henderson, president of Prime-Ag Consultants Inc., a commodity brokerage in Brookfield, Wis., says December corn could "easily" drop to $4 by harvest if the crop gets enough rain this summer.